For the government, enticing youth to open their own companies is a priority. “Entrepreneurship is essential to Egypt’s economic growth, especially amid the current challenging global context,” the World Bank said in December. “By starting their own businesses, entrepreneurs … can generate sustainable incomes for themselves and create more jobs within their communities, boosting incomes for more people.”
Unlike almost all other economic activities, promoting entrepreneurship requires more than government or private sector incentives and investments. “Entrepreneurial activity across countries suggests that factors other than economic ones are at play,” Roy Thurik, a professor of entrepreneurship and economics at Montpellier Business School in France, said in a book titled “Entrepreneurship in Context.” “Cultural factors … play a role.”
Accordingly, not having an entrepreneur-friendly culture would most likely stall any country’s transformation to an “entrepreneurial economy” where “individuals are constantly bringing innovations to market, and those innovations displace the status quo,” explained a research paper from Florida State University.
Multi-layered relationship
The connection between culture and the willingness of young people to start businesses is complex. “Extensive research at the individual level … shows a link between values, beliefs and behavior,” Thurik said. “It is plausible that the difference in national culture in which … values and beliefs are embedded may influence a wide range of behaviors, including the decision to be self-employed rather than work for others.”
Blanket assessments about an economy’s entrepreneurial ability based on culture could prove unreliable. Gloria Morales, a researcher at the University of Ibague in Colombia, said in a 2022 paper that while “it has been affirmed that the entrepreneurial spirit depends on the national culture, it is a fact that within a country there is a diversity of cultures that can promote to a greater or lesser extent the development of this spirit.”
Another factor dictating the influence of culture on entrepreneurship is the snowball effect. “If there are more people with entrepreneurial values in the country, there will be an increased number of people displaying entrepreneurial behavior,” said Thurik.
Lastly, Morales noted the role of government efforts in changing a country’s culture to realize its entrepreneurship ambitions. “Policies, laws and strategies can shape citizens’ national sentiments and perceptions toward starting their own businesses,” she said.
Personal motives
Thurik noted that the more satisfied individuals are with their status quo, the less likely they will become entrepreneurs. Such satisfaction comes from being born into a wealthy or content country or family, where the “post-materialism notion reflects the prevailing circumstances during their formative years.” As that satisfaction continues, those individuals’ resources increase, making them increasingly averse to the risks of starting a business.
Thurik noted such attitudes are “a consequence of the unprecedented prosperity and absence of war in Western countries since 1945.” He added, “Young … cohorts attach less importance to economic and physical security than older cohorts.” Accordingly, “If they work on [personal] projects, it is usually to attain esteem, self-realization and quality of life.”
A post-materialism shift almost always happens “intergenerationally” as younger citizens start their careers just as “older cohorts” retire. Noticeable shifts “do not happen within [one’s] own life span,” Thurik said. “These values are very slow to change within particular cultures.
Financial and other material benefits are not the only criterion determining whether someone opens a business. “At the level of the individual, various kinds of dissatisfaction are conducive to job mobility and the propensity to become self-employed,” Thurik said.
Dissatisfaction unrelated to income or other material gains likely arises among post-materialism salaried employees. Thurik said those employees turn to self-employment if they are “dissatisfied with the [current] work itself, with supervision and with opportunities for promotion.” He also noted “job security” and dissatisfaction with “the way democracy works … increases the chances they will seek self-employment.”
Non-financial dissatisfaction among salaried employees arises from “negative information,” such as realizing there will be no promotions, rather than the positive prospects of making more money if they become self-employed, which motivates those seeking material benefits.
Failure influence
A research paper by Naga Damaraju, a professor in the Department of Management at the School of Business and Economics at Sonoma State University in the United States, stressed the tremendous impact the “stigma of failure” has on entrepreneurs.
She noted such a stigma significantly impacts existing and potential business owners, as entrepreneurship is “characterized by relatively high levels of failure,… making people pursue risk-averse, non-entrepreneurial activities.”
The paper said the stigma of failure “causes innovation trauma” when ideas fail. It “can also have longer-term economic and psychological consequences.”
The paper noted that societal rejection of unsuccessful entrepreneurs is primarily evident in “collectivistic cultures” where individuals “place higher importance on group beliefs” and in “high uncertainty avoidance cultures.” Their most prominent trait is their “anti-failure bias/stigma of failure.” That makes these societies “less conducive for entrepreneurship.” Individualistic cultures are the opposite, where “opinions are not as important, and there is less need for compliance.”
The report noted the “fear of failure varies across nations” and is unrelated to income levels or economic development. “Failure in an individualistic culture like the USA or Canada [whose GDP sizes rank first and 10th] rarely leads to personal shame or a feeling of personal worthlessness,” Damaraju said. “However, in a collectivist culture like Japan [the world’s fourth biggest GDP], top managers of bankrupt firms may … commit suicide to avoid stigmatization.
Those countries’ cultures affect their entrepreneurship rankings. According to the latest report from the Global Entrepreneurship and Development Institute, the United States and Canada rank first and third, respectively. Japan ranks 28th, behind developing countries with much smaller GDPs like Chile, the UAE and Qatar.
Another factor impacting the stigma of failure is whether the country’s culture leans toward masculinity or femininity. “Entrepreneurial failure [is] contrary to the expectations in ‘masculine’ cultures and likely met with high social costs,” Damaraju said. Compared to more balanced national cultures, the stigma of failure in masculine-oriented cultures may last longer and run deeper.
A more “feminine-oriented” culture “highly values … equal treatment, helping individuals and environment preservation.” Failed business owners in this culture are treated the opposite in “masculine” cultures.
Other cultures where the stigma of failure is high are those that tend to avoid taking risks and don’t like uncertainty. Another is when power in a community is concentrated among the elite, leading them to stigmatize failure to preserve their own positions. “People in these cultures look for structure in their organizations, institutions, and relationships,” said Thurik of the Dutch University.
Diversity
Globalization has had increasingly significant effects on the international labor force. A February research article by Paula Prenzel, a professor of regional development at Greifswald University in Germany, noted, “Demographic change and growing international mobility in the last decades have led to [the] internationalization of the labor force in many industrialized countries, raising questions about the economic impacts of cultural diversity.”
That diversity positively impacts entrepreneurship in nations that integrate foreigners into society. “In regions with a culturally diverse population, entrepreneurs are more likely to pursue innovative rather than replicative business models,” Prenzel said. Employees with different backgrounds “offer new knowledge, ideas and approaches.”
Get in the Ring, an organizer of competitions for startups, explained, “Diverse groups are more effective at generating new ideas or solving problems.” That is mainly due to those employees’ “different ways of thinking [and] analyzing a situation from completely different perspectives.”
Diverse cultures should make startups more innovative. “If the effects of cultural diversity on entrepreneurship are, at least partially, due to innovative processes, this would imply not only an increase in the quantity of startups but also a qualitative difference,” Prenzel said.
Diversity also means startups should have “access to bigger networks,” according to a report by Get in the Ring. “The more diverse employees there are, the more access to different and multiple networks you have.”
If a product or service appeals to users, those networks will generate “greater trust and understanding between those groups, facilitating communication.”
In the long term, “expanding [locally and internationally] can also be a lot easier if your business already has a diverse team,” the Get in the Ring report said. “It can be hard to expand because of the many obstacles that appear during the process, such as culture shock, different laws and customs, [and] assessing risks … But a diverse [workforce and culture] can help overcome such obstacles and even appear more trustworthy.”
Government strategy
“Education plays an important role in analyzing the impact of the cultural environment on entrepreneurs,” said Morales of the University of Ibague, noting a “strong positive correlation” exists between having entrepreneurship-friendly education systems and the creativity to thrive.
Public schools or universities, where most local students enroll, should “infuse entrepreneurship within every aspect of the … curriculum,” according to a report by the Academy of Management Proceedings, an academic think tank.
That will not be a “minor or easy task for the school,” the report said. “New ideas or proposals often have to overcome burdensome hurdles. Thus … an introductory entrepreneurship course for placement in a general education curriculum may face an environment that is highly biased against it.”
Another complication facing the introduction of entrepreneurship education is its interdisciplinary nature. “Successful integration of this course with other [education] programs is an important objective that meets the multiple needs of a variety of stakeholders,” the Academy of Management explained,
Morales also noted the importance of “public policies … necessary to structure the entrepreneurial ecosystem.” That includes “initiatives that encourage the generation of new ventures and therefore new jobs that enhance the economic development of society.”
In November, AIContenty, an SME and startup consultancy, stressed that “securing funding is an integral part of building a thriving entrepreneurship society.” Governments also need to increase the number and awareness of local “incubator and accelerator programs.”
Other government strategies include “promoting a growth mindset” within their societies to minimize the “stigma of failure” problem, Morales said. That could happen by “celebrating failure as a learning opportunity.”
She added the state also has to “showcase successful entrepreneurial stories, establish mentorship programs, [create and promote] working spaces and entrepreneurial hubs, and connect entrepreneurs and investors.”
To further grow the country’s entrepreneurial culture, the government should open communication and access between universities and research institutions via joint entrepreneurship programs and support the commercialization of ideas. It is also responsible for developing “supporting policy and regulatory frameworks and creating favorable tax and investment incentives” for startups.
Governments need to ensure their efforts effectively steer national culture toward entrepreneurship. “The construction of the entrepreneurial ecosystem is undoubtedly the great challenge that the public-private institutions … must face,” Morales said. “It is important to … move in the triple-helix university — company — state. If any of the parties are not involved with the ecosystem, it can lead … to sterile efforts … with duplicate actions and minimal results.”
This article first appeared in the July print edition of Business Monthly magazine.
